Long Duration Funds: Definition, Advantages & Risks

Investments do better in the long term if we consider the power of compounding. Just like equity funds, debt mutual funds also offer investment opportunities for long-term investment horizons.

In this post, we’ll explore a category of debt funds that is tailored for investors who want to invest in fixed-income securities and have a long-term investment outlook.

What Are Long Duration Funds?

As per SEBI’s definition, long-duration funds are debt mutual funds that must invest in debt and money market instruments with a Macaulay duration of more than seven years.

What Is Macaulay Duration? Macaulay duration is a measure of the weighted average time until the bond’s cash flows are received.

How Do Long-Duration Funds Work? Long-duration funds are managed by professionals who construct portfolios comprising money market instruments and high-quality debt securities, aiming for a Macaulay duration of over 7 years.

Objective- As the name suggests, these funds cater to conservative investors with extended investment horizons, effectively balancing favourable returns and liquidity.

[ Related Read – Debt Funds & Their Different Types ]

Examples of long Duration Funds

Here are some examples of long-duration funds.

  1. Nippon India Nivesh Lakshya Fund
  2. ICICI Prudential Long-Term Bond Fund
  3. HDFC Long Duration Debt Fund
  4. Axis Long Duration Fund
  5. SBI Long Duration Fund

Note- These are not recommendations. Investors must analyse each fund themselves.

Advantages Of Long-Duration Funds

Let’s have a look at some of the advantages long-duration funds offer to their investors.

1. Better Liquidity Than Fixed Deposits

If you invest in fixed deposits for a long period like 7 or more years, you can not access your money to get desired returns. Long-duration funds give you the flexibility to sell the units without any charges once you complete a tenure of 3 years.

2. Promising Returns

Long-duration funds offer promising returns similar to fixed deposits in the long term. However, the risk factor varies in both the investment options i.e. long duration funds and fixed deposits.

Associated Risks

Risks – Long-duration funds carry three main risks namely – interest rate risk, credit risk and liquidity risk. Below are their respective definitions.

1. Interest Rate Risk: Long-duration funds are sensitive to changes in interest rates. Rising rates can lead to lower bond prices and potential capital losses.

2. Credit Risk: There’s a chance of issuers defaulting on interest payments or principal, impacting fund returns, even though these funds typically focus on higher-quality bonds.

3. Liquidity Risk: Some bonds in the fund’s portfolio might be less tradable, making it challenging to sell them quickly, particularly during market stress.

4. Market and Economic Risks: Broader market shifts, economic conditions, and geopolitical events can affect the performance of bonds within the fund.

5. Reinvestment Risk: When existing bonds mature or pay interest, reinvesting in new bonds at lower yields due to falling interest rates can impact future returns.

Factors To Consider

There are some important factors to investigate before investing in a debt mutual fund for the long term.

A. Composition Of Fund’s Portfolio – Analysing the fund’s portfolio may help you calculate the involved risk. The portfolio should comprise reliable and highly rated securities.

B. Past History Of Fund – Analysis of past performance can tell a lot about the fund, its management and expected returns.

C. Expense Ratio & Additional Charges – Considering the compounding effect, a higher expense ratio can significantly erode your overall returns. Also, be aware of additional charges.


  1. How are long-duration funds taxed?

    As per recent changes in taxation rules for debt mutual funds, these funds are now subject to taxation according to the applicable Income Tax slab rate.

  2. Can I Do SIPs In Medium To Long-Duration Funds?

    Yes, most mutual fund companies offer the flexibility to do a systematic investment through SIPs.

  3. How to invest in a long-duration fund?

    Investing in a long-duration fund is a very easy process that consists of the following steps.
    1. Open an investment account with any reputed AMC or online investment platform
    2. Complete your KYC
    3. Research and select a long-duration fund
    4. Choose the amount and mode of investment
    5. Make the payment..

A commerce graduate turned a digital creator to follow his passion for writing and sharing useful & well-researched information that adds some value to people's lives.

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